China Flash #1

Despite talks and speculation on hard landing and capital flight, China remains a dominant factor for world shipping demand.

We are pleased to share some observations on the main dry commodity markets we follow.

The COAL tight supply shows no sign of easing at Northern China ports. Vessels now need to wait for at least a week to get coal onboard. Leading domestic miners have therefore decided to raise March prices. To support trading activity, Northern port authorities have lowered their port charges. Domestic coastal freight rates slide further on the back of excess shipping capacity. Overall coal shipments from northern China ports may be further reduced in 2016 due to the continuous downturn in the coal market. While China’s rail and port capacity has expanded, coal demand in the coastal areas has been falling. This could eventually lead to a surplus in rail and port capacity and fiercer competition among ports. Premium low sulphur coal from Inner Mongolia is expected to become a key domestic competitor to seaborne supplies as the coal is also more environmentally friendly.

IRON ORE AND STEEL prices improved last week. The Iron ore price is now USD 49.5pmt, a new high record in recent 4 months. Iron ore stockpiles in major ports is 98 million tons which is high. While some blast furnaces are recovering in light of better prices the overall steel and iron ore markets are depressed as the overcapacity remains.

According to a recent report from the broker house Howe Robinson (howerobinson.com), Chinese iron ore imports have for the first time exceeded 100% of what is required to produce the entire blast furnace production of crude steel. They see this as a sign that the structural undersupply of iron ore has finally been corrected. The world is for the first time producing more iron ore than what is needed on the open market. Previously miners could expect that whatever they mined of iron ore it would eventually be sold (to China), this may no longer be the case.

GRAIN import is now shifting from US Gulf to East Coast South America, predominantly on Panamax vessels. With crushing margins in China moving into negative territory it remains to be seen how many cargoes will eventually be fixed in the near term as several requirements are subject to sales being concluded for the freight to materialize.

OTHERWISE as global investors last week were looking to the Shanghai G20 meeting for reassurance and action, China and other countries tried to reduce anxiety over recent market turbulence and currency volatility. “The magnitude of recent market volatility has not reflected the underlying fundamentals of the global economy,” said Lou Jiwei, China’s finance minister at a press conference at the conclusion of the G20 meeting on Saturday. In an effort to underline that devaluation was not on its agenda, Beijing has taken steps to improve communication on economic and financial policies.

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